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ECONOMY| 06.05.2021

Crypto art: The rise of the latest NFT investments during the pandemic

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Digital art with NFTs—Non-Fungible Tokens, which are related to Blockchain technology—is making noise in the investment world. Alberto Matellán, MAPFRE Inversión Chief Economist, issues a warning about this new trend, which offers the possibility of acquiring a kind of digital token that proves ownership of “digital artwork.”

NFTs can be defined as a certificate of ownership of an item, usually a piece of digital artwork, but also videos that may be hosted on public platforms, or any other multimedia file.

 “It is an electronic document that verifies ownership of that item and is based on Blockchain. Compared to the real world, it would be equivalent to a property title deed, only in this case through a highly secure digital medium,” explains Alberto Matellán, Chief Economist at MAPFRE Inversión.

It is similar to the traditional market, where collectors or investors are willing to pay for old color prints, stamps, etc., but with the distinctive feature that the piece usually has very little value in itself. A traditional work of art, or collector’s piece, is valued according to its exclusivity, difficulty in reproducing or the enjoyment gained from contemplating or listening to it, as is the case with the most reputable works of art.

 

A question of value

At the moment, this is not the case with NFTs, Matellán warns. Ownership does not prevent others from enjoying the same piece, if it is hosted on a publicly accessible platform (for example, a video on YouTube). Furthermore, there is the irony that, although the piece may be hosted on a publicly accessible platform, the NFT usually is not, which sometimes causes the NFT to disappear, as the server where it is hosted may, for example, disappear if the company that maintains it goes out of business. In the same way that, if the owner of a property stores title deeds with a company, which then goes out of business, the deed is lost. In that situation, it would be impossible to prove that the property was yours.

Matellán elaborates: “What you are paying ever more astronomical amounts for is the title deed itself, which obviously includes the ownership of the property. But if the associated piece is housed in a public place, it would be as if the property were for public use as well. In fact, the issuer of the NFT should not even have ownership of the piece.” It is enough that this piece does not yet have a verifiable owner, which, in his view, opens up possibilities that are as dangerous as they are absurd.

Beyond the concept of investment

For Matellán, all of the above demonstrates several things. “First of all, the prices being paid for NFTs in the secondary market make little sense and are largely due to the attention they are receiving due to being a new technology,” he notes. “But the intrinsic value of the associated assets is very small. That is why we do not consider them to fall under the same concept as investment, similar to what happened with cryptocurrencies, which are created with the same technology: Blockchain,” he adds.

According to Matellán, “NFT may have a great future as a more secure means of establishing ownership or for other documents that require or provide reliable accreditation. From this point of view, NFTs have the potential to modify many financial processes in the future. But today, as an investment, I would personally describe them as a bubble or gamble, rather than as a returnable asset,” he clarified.

In the face of a bubble?

Advocates of this NFT fever argue that digital creation profits from this work, cutting out intermediaries and marketing pieces directly to the buyer. The reality is that these assets, which exist only digitally, with Blockchain acting as a public accounting record to confirm ownership, attract buyers for the same reasons as Bitcoin, which is to buy something that can then be resold at a higher price in a short time.

History was made recently at Sotheby’s auction house: An NFT of a single gray pixel sold for $1.36 million, after just an hour and a half of bidding. A few weeks ago, a red pixel was sold for 7,154 dollars. If we go back in time to 2005, those interested in a pixel paid a dollar.

An investor known as Beeple sold his digital piece, Everydays: The First 5000 Days through Christie’s for 69.3 million dollars, making it one of the most expensive pieces of crypto art. New records are constantly being set, however, even if acquiring a digital representation of a Picasso or Egon Schiele does not mean owning the original.